Answer to Question #249344 in Microeconomics for Rich

Question

08. The New York Times (Nov 30, 1993) reported that à ¢ € œthe inability of OPEC to agree last week to cut production has sent the oil market into turmoil . . . [leading to] the lowest price for domestic crude oil since Jun 1990.à ¢ € 
a) Why were the members of OPEC trying to agree to cut production?
b) Why do you suppose OPEC was unable to agree on cutting production? Why did the oil market go into à ¢ € œturmoilà ¢ €  as a result?
c) The newspaper also noted OPECà ¢ € ™s view à ¢ € œthat producing nations outside the organization, like Norway and Britain, should do their share and cut production.à ¢ €  What does à ¢ € œdo their shareà ¢ €  suggest about OPECà ¢ € ™s desired relationship with Norway and Britain? (10Marks)

Answer 1

a) The members considered the fact that oil price tends to affect all sectors, including technology. Increase in the price of Oil makes businesses to increase the value of their products.

b) OPEC considered the fact that cutting production will contribute to reduction in supply of the respective product. This will affect its demand within time, hence more income will be needed in every business area.

c) The desired relationship suggests that other countries need to consider the fact that transport factor affects every business field and operation, including the exports.